Report Notes Tight Occupancy and Moderate Rent Growth in the Apartment Market at the End of 2013

Report Notes Tight Occupancy and Moderate Rent Growth in the Apartment Market at the End of 2013

CARROLLTON, TX - The U.S. apartment sector’s performance remained healthy at the end of 2013, though the late-in-the-year seasonal slowdown that is routine for the market did occur once again. Year-end occupancy came in at 95 percent, off slightly from 95.4 percent as of third quarter. Late 2013’s annual rent growth pace of 2.8 percent was down mildly from the 3.2 percent figure posted a quarter earlier. Those findings reflect the performances seen across more than 7 million apartment units tracked by MPF Research, an industry-leading market intelligence division of RealPage, Inc.

MPF Research analysts highlight the nation’s latest apartment occupancy and rent growth statistics as well as other key performance indicators for rental housing in a discussion found at here.

“Late 2013 performance results were encouraging, viewed in light of the fact that completions ramped up during the time period that there’s a seasonal lull in demand,” said MPF Research vice president Greg Willett. “This definitely was a point of vulnerability for the apartment sector because of the timing of new supply reaching the finish line, and we got past this period without significant damage.”

The number of units in properties that were finished during the final three months of the year jumped to 53,327 across the nation’s largest 100 metros, up from quarterly completions that had averaged roughly 36,000 units during the initial three quarters of the year. Calendar 2013 new supply totaled 163,155 units. While apartment demand fell short of deliveries specifically during the fourth quarter, calendar year absorption of 155,491 units proved about in line with the total additions.

“With an increase in the number of units moving through initial lease-up, overall product availability has grown of late,” according to Willett. “However, new supply hasn’t resulted in net move-outs at existing properties, where the occupied unit count actually is up a little on an annual basis.”

The impact of new supply coming on stream is more apparent in rent growth statistics than in occupancy rates, MPF Research analysis shows. Annual rent growth in the newer, top tier of existing product cooled to 1.8 percent at the end of 2013, compared to increases of 3.1 percent in 1990s-era projects and 3.8 percent in the stock built in the 1980s and 1970s.

“Middle-market properties are in the sweet spot for overall performance right now,” according to Willett. “Only a handful of units are available in that product niche across most metros, and the residents living in that stock generally can’t afford to buy housing or to rent the high-end new apartment supply that’s being delivered.”

Among large individual metros, Denver-Boulder and San Jose tied for the #1 position on the list of the country’s annual rent growth leaders during 2013. Pricing for new leases grew 7 percent in both locales. Pricing increases were nearly as big in Oakland and Portland, both posting 6.6 percent jumps, and San Francisco, where rents rose 6 percent.

Additional large markets on the annual rent growth leaderboard were Seattle-Tacoma (5.5 percent), Miami (5.2 percent), West Palm Beach (4.9 percent), Austin (4.8 percent), and Houston (4.4 percent).

Metros that just missed the cut-off point for the best-performers list included Atlanta, Fort Worth, Nashville, Orange County, and San Diego.

With the run-up in apartment construction starts seen in late 2012 and early 2013, scheduled deliveries in the nation’s 100 biggest metros climb to 234,700 units in 2014. Demand is anticipated to rise too, thanks to an improving outlook for the economy generally, and for job production specifically. But apartment absorption probably won’t quite keep pace with product additions in 2014, according to MPF Research analysts, who think occupancy will cool mildly to 94.6 percent by the end of the year. The firm forecasts rent growth of 2.6 percent over the coming year, with middle-market product continuing to achieve price increases well above the upturns in the newer, luxury property segment.

While completions will accelerate in 2014, MPF Research anticipates that construction starts will move in the opposite direction. “We’re already seeing the number of units at the starting gate hit a plateau or actually decline in most markets,” Willett said. “It looks like the future new supply beginning construction in 2014 will dip at least 10 percent from 2013’s total, and the decline could be as much as 20 percent.”

Fewer completions in 2015 likely mean that 2014’s overall revenue growth performance will mark the low point for the current cycle. “The big-picture story for the apartment market is that we’re in a cycle where performances will remain solid for a long time, though they won’t be at the spectacular levels that were recorded in the early part of the recovery process,” according to Willett. “Overall expectations for investment returns remain attractive with only limited downside risk.”

Source: MPF Research / #Apartments #Multifamily

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